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02/18/2014 05:14 pm ETUpdated
Apr 20, 2014

U.S. Challenges India's Solar Industry, Again

By Ilana Solomon and Justin Guay

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On February 10, the United States filed a World Trade Organization (WTO) complaint against India. The allegation? That India may be unfairly supporting the development of its solar manufacturing industry. This misguided complaint will only further enflame tensions between the world's two largest democracies over an issue we all support: deploying more clean energy.

If this story sounds familiar, that's because it is. Last year we wrote about the first set of WTO consultations that the United States initiated to challenge India's use of subsidies and "buy local" rules in India's national solar program. The consultations have since concluded, and the U.S. never brought a formal case. Unfortunately, angered by the continued support that India is offering to its domestic solar manufacturers under its national solar mission (yes, you're reading that right), the United States has come back to once again request WTO consultations with India.

To understand the importance of this case, you must first understand the progress the Indian government has made deploying solar. India's national solar program was launched in January 2010 and aims to bring 20,000 megawatts of solar power to India by 2022. The program has driven dramatic growth-India has grown its solar capacity from nearly nothing to more than 2,000 megawatts.

This solar expansion has been timely. High-profile calls from investment firm Blackstone have come loud and fast, demanding that India's power mix diversify, starting with solar, because the troubled Indian coal industry has been unable to expand to meet power demand. That focus on expanding the solar industry is partly why many of India's domestic companies have been eagerly eyeing the implementation of Phase II of the solar program, which extends from 2013 through 2017.

India's first goal under Phase II is to bring an additional 750 megawatts of solar energy online. To do that, the government of India is administering a competitive bidding process that, in part due to the promise of approximately U.S. $306 million in funding support, has so far attracted applications from 68 investors across the world. In order to boost Indian solar manufacturing, India is requiring that half of that solar capacity -- 375 megawatts -- be built with solar cells and modules that are made in India. The other 50 percent of the capacity can use modules sourced from anywhere in the world -- including the United States.

In sum, this project will result in more solar power that will help reduce India's reliance on coal. It will also provide domestic companies reeling from the troubles the coal sector has experienced a profitable way to diversify and reduce climate-disrupting pollution. Sounds like a program the U.S. should be supporting -- even emulating -- right?

Well, not according to the United States Trade Representative. Like its first compliant, the United States claims that the "buy local" portion of India's program -- also referred to as domestic content requirements -- discriminate against U.S. solar exports. The U.S. is particularly concerned that India has extended the domestic content requirements to cover thin film technology, which currently comprises the majority of U.S. solar product exports to India and which was originally exempt from the local content rules under Phase I.

More specifically, the United States claims that India has violated WTO rules under the Article III:4 of the General Agreement on Tariffs and Trade (GATT) and Article 2 of the Agreement on Trade-Related Investment Measures (TRIMS) by allegedly providing more favorable treatment to domestic solar producers and products than to foreign ones.

We think the claim is misguided, at best, and harmful to the future of solar deployment, at worst.

First, the success and growth of India's solar industry is being undermined by the power of its coal industry, which receives enormous subsidies and enjoys strong political backing in India. It's so powerful, in fact, that it has soaked up nearly all available finance through the construction of new coal plants so that there is no money left for alternatives like solar. One way for India to challenge the power and money flowing to coal is to develop a strong domestic renewable energy industry with skin in the game. Domestic content rules -- which have been a standard policy tool used to foster, nurture, and grow new industries -- can help accomplish this goal while generating other local benefits, including new investment opportunities in a growth industry, opportunities for technological innovation, job creation, and new sources of tax revenue.

Second, every country should be able to grow and support domestic manufacturing of renewable energy, including solar. In October 2012, the United States imposed anti-dumping tariffs on Chinese solar cell products. While the particulars of the case with China were vastly different from the particulars of this case with India, they share one thing in common: a government trying to grow and develop domestic solar manufacturing. It is incoherent for the U.S. to support this principle at home, but attack another country that attempts to do the same. The presence of strong renewable energy industries in multiple countries, including India, can help spur competition and innovation that will ultimately help drive the deployment of renewable energy.

Third, we need to increase investor confidence in solar, not shake it. India's solar market is growing fast but it's still at a nascent state. The U.S. is creating more uncertainty by missing the forest for the trees. By fighting for a bigger piece of a currently small solar market pie, the U.S. is enflaming tensions between two important countries and potentially endangering a market that will become significantly bigger. The U.S. should not compromise the long-term growth of the solar market -- growth that will expand the size of the pie for all -- just so that it can achieve limited near-term gain.

And finally, our collective future is at stake. All governments must have the ability to develop domestic renewable energy industries to fight climate disruption and the entrenched fossil fuel industry behind the crisis. Given the dire costs of the climate crisis that both the United States and the WTO have acknowledged, it is imperative that all governments have the ability to develop the renewable energy industries necessary to fight climate disruption. India's program strives to establish India as a leader in solar energy. Its efforts should be supported. Neither the United States nor international trade rules should stand in the way.